December’s payrolls report “showed a modest deceleration in employment, as total private sector job growth at the establishment level rose by 146,000,” which was well below the 239,000 upwardly revised gain in November, according to a new report from Savills Studley. More specifically, office employment grew by 32,000 in December, which the report calls “a disappointment,” given monthly growth averaging 53,000 over the past year.

During 2017, office employment grew by 621,000, versus 710,000 in 2016. A major issue for the year just starting, the report says, is “whether companies are looking to slow their headcount growth” or whether the shortfall reflects their inability to find qualified workers in a tight labor market.

“December’s payroll gains showed a definite slowing, raising more doubt as to whether the Fed will be ready to embark on another rate hike come March,” the report’s author, Heidi Learner, Chief Economist for Savills Studley, said in a prepared statement.

As the unemployment rate hovers just above 4 percent, a key question is whether and when this tightness in the labor market will translate into wage growth, possibly putting upward pressure on inflation. There are about the same number of non–labor force participants who would like a job today as in 2007, and more jobs available today than in early 2007, the report notes, “yet wage growth is running a full percentage point below the rate of wage gains observed a decade ago.”

Wages and the Fed

Without a sustained rise in wages, it’s difficult to see the outgoing Fed chair’s expectations for a rebound in inflation materializing, according to the report.

And though 18 states raised their minimum wages as of the new year, none of them has a minimum wage above $11.50, which is well short of the $15.66 average hourly wage of leisure and hospitality workers, the sector with the lowest average hourly pay.

“With minimum wage increases unlikely to boost overall wage inflation, expect a Fed that holds off on a rate hike in Q1 2018 unless wage growth accelerates dramatically over the next few months,” the report predicts.